tices in order to compete for this volume traffic. Through the exemptions we have created a situation destructive to our basic objective of a strong national transportation system built around a core of regulated common carriers by all economic modes.

The volume of exempt transportation on our waterways has been discussed in "Part II-Trends." Until recently the growth of waterway traffic was such that this lack of regulation seemed to cause little concern among regulated water carriers, although it was of growing concern to competing railroads. Indications are that this situation has now changed and that the regulated water carriers are seriously concerned with the effect of unregulated competition upon their future earnings ratio.

Competition is not an end in itself. It can produce desirable or undesirable results. In the case of regulated competitive industry it is but one of the tools by which Government seeks to achieve national objectives. We want enough competition to motivate improved technology (techniques) and to force efficient operation. We expect it to bring about sharing of carrier cost reductions with the users. We want it to eliminate the inefficient operator or the uneconomic mode. We cannot permit it to force price reductions not justified by sound economics which, in the long run, can only result in a deteriorating transport system. If unregulated competition becomes a serious threat to regulated carriage then either we must bring it under regulation or abandon our position that only a system built around regulated carriers will serve the needs of the Nation as a whole. We have concluded elsewhere that a system of private and unregulated for-hire carriage will not adequately serve the national requirements. Therefore, exemption from regulation cannot be permitted to compromise the continued existence of regulated carriers. Furthermore, we have elsewhere concluded that intermodal competition today requires control of minimum rates in competitive traffic. Such control is meaningless if the bulk of the revenue traffic of one of the competing modes is unregulated.

Since our goal is not the extension of regulation as such but rather the preservation of sound financial conditions among efficient carriers we should take a good look at those bits of restrictive regulation which contribute to poor utilization and otherwise increase costs among water carriers.

1. Bulk commodities defined

Section 303 (b) of the Interstate Commerce Act defines bulk commodities (for the purpose of exemption) in terms of custom of the trade as of June 1, 1939. Are we to suppose that industrial technology and user preference was somehow frozen as of that date? If new products appear, or if it becomes desirable to transport old products in a different manner, regulation should readily adapt itself to the change without special legislation. We recommend the redefining of bulk commodities as follows:

Bulk commodities are commodities loaded and carried without wrappers or containers, which are received and delivered by the carrier without transportation mark or count, and which are sufficiently homogeneous that any reasonable minimum quantity can be delivered.

2. The mixing rule

Bulk commodities are presently not exempt from regulation if they are transported in a barge, tow, or vessel with nonbulk commodities or if more than three bulk commodities are loaded in the same barge, tow, or vessel. The effect of this rule on regulated water carriers who desire to participate in bulk traffic is to force them to separate bulk traffic from nonbulk traffic in a separate tow or vessel, regardless of the effect upon efficiency of the carrier, service to the user, or upon national transportation costs. Thus, we place economic and service penalties upon the very carriers it is our national policy to preserve. In the interests of efficient use of equipment, leading to lower overall transportation costs, and in the interests of assisting the regulated water carriers to maximize their potential of service at the lowest reasonable cost, we recommend repeal of the mixing rule insofar as certificated common carriers are concerned. It should be noted that such repeal would not apply to licensed bulk carriers as described hereinafter.

3. Differentiation between towing and freighting rights

Regulated water carriers may possess only towing rights over some sections of a waterway system and freighting rights over other sections of the waterway. It is obvious that this differentiation can introduce unnecessary delay and cost incident to interchange, contrary to the national objective of maximizing service and economy. There is no discernible national benefit to be derived from uneconomic fragmentation of operating rights in this manner. We recommend that towing and freighting rights of existing certificated carriers be amended on application so that they coincide without reduction of either when investigation of each specific case indicates that service would be improved or costs reduced thereby and that future certificates, permits, or licenses be issued without such differentiation. 4. Tributary rights

A water carrier operating on the main stream may not possess rights on a tributary entering in the area he is authorized to serve. Uneconomic interchange can result from this condition. On the other hand, the main stream carrier may not have desired to operate on the tributary until after that route had been pioneered by another carrier, whose efforts and investment are entitled to respect. In the interest of efficiency and economy we recommend that certificated water carriers operating on the main stream be given priority over new carriers in the granting of new certificates on tributaries and similarly for tributary carriers regarding new rights on the main stream. In the interests of the users, such priority should not operate to delay or detract from adequate service. Consolidation of tributary and main-stream carriers should be fostered by governmental promotional and regulatory programs.

We have said above that unregulated carriage should not be permitted to weaken our common carrier system. Elsewhere we have said that only the minimum necessary regulation should be imposed. We believe that if the foregoing recommendations to promote the efficiency of common carriers by water are implemented, the only extension of regulation needed would be:

(1) Provide for a category of for-hire water carriers licensed to transport bulk commodities only and required to hold out this service to the general public. Presently operating exempt carriers would be given grandfather rights as licensed bulk carriers on application, without hearing. Note that present exempt carriers do not carry nonbulk commodities and hence no grandfather situation exists except in relation to bulk commodities.

(2) Licenses should authorize operation on a waterway system without point restriction.

(3) Control of new entry of licensed bulk carriers should require a showing of fitness and ability only. No requirement to prove public convenience and necessity should be imposed. New entry should be denied if, after proceedings on its own motion or upon complaint, the regulatory agency finds that approval of the application would result in excessive competition, or would violate the national transportation policy or would otherwise be contrary to the public interest. In such cases those opposing the application should bear the burden of proof.

(4) Licensed bulk carriers should be required to file a schedule of minimum rates subject to standard tariff filing procedure and approval. Rate control should be based on cost formulas and should operate to insure reasonable return to efficient operators.

(5) Licensed bulk carriers should receive priority over new carriers in issuance of new common carrier certificates on the same waterway system.

(6) Repeal the present bulk exemption, sections 303(b), 303 (c), and 303 (d) of the Interstate Commerce Act.

(7) Other exemptions contained in section 303 should remain

in effect.

Regulations governing charter should be established by the regulatory agency under broad congressional directives written to insure that charter is not used as a means of evading regulation of for-hire carriage nor of circumventing the objectives of national policy. It is suggested that charters be for a reasonable time period, for the exclusive use of the vessel by the charterer, and paid for on a time rather than tonnage basis. If the charterer is the owner of the cargo, the rules of private carriage recommended elsewhere in this report would apply. Otherwise, the charterer could be only a certificated, permitted or licensed for-hire carrier operating under the terms of his certificate, permit, or license or an exempt operator under the remaining exemptions of section 303, Interstate Commerce Act.

D. FURTHER EXTENSION OF EXEMPTIONS

As we have concluded in the foregoing sections of this chapter, there is too much exemption from regulation at this time. Elsewhere we have stressed the point that any material reduction of specific regulation is contrary to the national interest unless accompanied by simultaneous removal of antitrust exemptions. We also have concluded that regulation is required to insure adequate service to the great majority of users. Because there has been a demand that regulation be either extended or relaxed in the name of equitable treatment of all modes, and because this agitation can be expected to continue, we believe the subject warrants specific comment.

It is almost axiomatic, as the Interstate Commerce Commission has frequently pointed out, that regulation of transportation is rendered ineffective by substantial exemption therefrom. If, as a national policy, we expect to retain the status of transportation as regulated competition, intermediate between regulated monopoly and general industry unregulated except by antitrust laws, then in all logic we must not emasculate our policy of regulated competition.

Equality of treatment of the several modes is a sound objective of our national transportation policy to which this entire study has been dedicated. We have, however, also established the position that the national interest must take precedence over any other, more limited interest. If regulation is rendered ineffective by large-scale exemption therefrom, and if regulation is essential, then any extension of exemption, even in the interests of equity, is contrary to the public interest.

In view of an unofficial railroad estimate that extension of agricultural and bulk exemption to the railroads would deregulate approximately 70 percent of their carload tonnage, we conclude that any such action would make regulation of transportation so generally ineffective that it would be, of necessity, abandoned.

As stated in the preceding sections of this chapter, we recommend that exemption from regulation, with certain exceptions, be gradually eliminated in the national public interest.

CHAPTER 5. ENFORCEMENT OF ECONOMIC AND SAFETY REGULATION 1. Introduction

The subject of enforcement and economic and safety regulation of transportation has been constantly brought before the study by interested parties representing different modes of transportation, some shippers, and State regulatory bodies. These parties have placed many of the economic ills of regulated transportation at the door of inadequate and dilatory enforcement, and have repeatedly impressed upon us the fact that regulation without enforcement is no regulation at all.

In our preliminary study of this subject we related enforcement of economic and safety regulation to all forms of transportation. We found no information which might indicate the existence of any significant problem in the oil pipeline industry that might require special economic or safety enforcement action. We found that the Federal Government has preempted enforcement responsibility for economic and safety regulation in air transportation, interstate rail carriers, and for waterway transportation, except small recreational craft.

Although our initial review indicated that further inquiry might identify some opportunities for improving enforcement of economic and safety regulation as applied to those modes, we decided to concentrate our limited resources on highway transportation because there are evidences of gross inadequacies in enforcement of economic and safety regulation here. In making this choice, we recognized that our action would not foreclose future consideration of enforcement problems in the other modes. Our findings and recommendations are reflected in the remainder of this chapter.

Lack of enforcement of adequate economic and safety regulation in highway transportation has been evidenced by recent events oc

curring during the course of this study which have focused the spotlight of attention here.

2. Economic regulation

Some of the specific events which show concern with the inadequacies of enforcement of economic regulation are:

(1) The creation by common carriers in Texas of an organization known as Transportation League, Inc., a nonprofit corporation to aid and promote vigorous enforcement of the Texas motor carrier law and part II of the Interstate Commerce Act in Texas.

(2) The visual comparison of the various State laws compiled under the auspices of the National Conference of State Transportation Specialists during 1959 which points up the lack of uniformity of the various State laws in such categories as: Jurisdiction which extends from trucks only in some States to airlines, railroads, trucks, barges, and even taxicabs in others; the number of certificated motor carriers in each State checked varies from 0 to 16,656; enforcement staffs in the various States range from 0 to 200; 13 States give their enforcement personnel no powers of arrest for intrastate violations 94 and 16 States do not require registration of interstate authorization.95 compilation discloses great variation in reciprocity provisions, identification, decals, copy of leases, bills of lading, and aiding and abetting-all of which pinpoint the specific need for uniformity.

The

(3) In the "Gray Area of Transportation Operations" study by the Interstate Commerce Commission issued in June 1960, the Commission assembled and analyzed the available data with respect to the so-called gray area of transportation operations. Page 12 of this report points out that the problem of "shipper lease of vehicle with driver" represents 45 percent of the "gray area" of transportation; and that fictitious "buy and sell operations," the next most important type of gray area traffic, represents 21 percent of the "unauthorized transportation.

(4) The 18-State national truck survey conducted by the National Conference of Transportation Specialists in June of 1960 which pointed out specifically that of 119,449 vehicles checked only 61,089 were certificated operators.96

(5) Present Interstate Commerce Commission hearings in connection with Agricultural Commodities Service, Inc., investigation of operations No. MC-8-2488, bring to light some of the glaring inequities practiced under agricultural exemptions.

(6) A recent article in the Wall Street Journal dated August 30, 1960, entitled "Bootleg Truckers" points out that illegal carriers operate about 25 percent of all trucks on the highway.

(7) The series of articles in leading trade publications, such as Transport Topics and the Traffic World, carried articles such as the one titled "Lease Quackery" in the August issue wherein the leasing association CATRALA advised that illegal

94 See exhibit 1, this chapter, p. 540.

95 See exhibit 2, this chapter, p. 541.

96 The portion of the 1960 report of the National Conference of State Transportation Specialists covering enforcement of economic regulation, as presented to the National Association of Utilities Commission, is attached as exhibit 3 of this chapter.